American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article Front Matter i ii http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.i 10.1257/mac.1.2.i American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article Optimal Monetary Policy Rules in an Estimated Sticky-Information Model RicardoReisColumbia U 1 28 This paper uses a dynamic stochastic general equilibrium (DSGE) model with sticky information as a laboratory to study monetary policy. It characterizes the model's predictions for macro dynamics and optimal policy at prior parameters, and then uses data on five US macroeconomic series to update the parameters and provide an estimated model that can be used for policy analysis. The model answers a few policy questions. How does sticky information affect optimal monetary policy? What is the optimal interest rate rule? What is the optimal elastic price-level targeting rule? How does parameter uncertainty affect optimal policy? Are the conclusions for the Euro area different? (JEL E13, E31, E43, E52) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.1 10.1257/mac.1.2.1 http://www.aeaweb.org/aej/mac/data/2008-0077_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article Can a Representative-Agent Model Represent a Heterogeneous-Agent Economy SungbaeAnSingapore Management U YongsungChangU Rochester and Yonsei U Sun-BinKimKorea U 29 54 Accounting for observed fluctuations in aggregate employment, consumption, and real wage using the optimality conditions of a representative household requires preferences that are incompatible with economic priors. In order to reconcile theory with data, we construct a model with heterogeneous agents whose decisions are difficult to aggregate because of incomplete capital markets and the indivisible nature of labor supply. If we were to explain the model-generated aggregate time series using decisions of a stand-in household, such a household must have a nonconcave or unstable utility as is often found with the aggregate US data. (JEL E13, E24) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.29 10.1257/mac.1.2.29 http://www.aeaweb.org/aej/mac/data/2008-0041_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article Hit or Miss? The Effect of Assassinations on Institutions and War Benjamin F.JonesNorthwestern U Benjamin A.OlkenMIT 55 87 Assassinations are a persistent feature of the political landscape. Using a new dataset of assassination attempts on all world leaders from 1875 to 2004, we exploit inherent randomness in the success or failure of assassination attempts to identify the effects of assassination. We find that, on average, successful assassinations of autocrats produce sustained moves toward democracy. We also find that assassinations affect the intensity of small-scale conflicts. The results document a contemporary source of institutional change, inform theories of conflict, and show that small sources of randomness can have a pronounced effect on history. (JEL D72, N40, O17) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.55 10.1257/mac.1.2.55 http://www.aeaweb.org/aej/mac/data/2008-0058_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article Democratic Capital: The Nexus of Political and Economic Change TorstenPerssonIIES, Stockholm U and London School of Economics GuidoTabelliniIGIER, U Bocconi and CESifo, Munich 88 126 We study the dynamics of economic and political change, theoretically and empirically. Democratic capital measured by a nation's historical experience with democracy, and the incidence of democracy in its neighborhood, appears to reduce exit rates from democracy and raise exit rates from autocracy. Higher democratic capital stimulates growth by increasing the stability of democracies. Heterogeneous effects of democracy induce sorting of countries into political regimes, which helps explain systematic differences between democracies and autocracies. Our results suggest the possibility of a virtuous circle, where accumulation of physical and democratic capital reinforce each other, promoting economic development and consolidation of democracy. (JEL D72, I31, N10, N40, O47) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.88 10.1257/mac.1.2.88 http://www.aeaweb.org/aej/mac/data/2007-0049_data.zip http://www.aeaweb.org/aej/mac/app/2007-0049_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article Understanding the Forward Premium Puzzle: A Microstructure Approach CraigBurnsideDuke U MartinEichenbaumNorthwestern U SergioRebeloNorthwestern U 127 54 High interest rate currencies tend to appreciate relative to low interest rate currencies. We argue that adverse selection problems between participants in foreign exchange markets can account for this "forward premium puzzle." The key feature of our model is that the adverse selection problem facing market makers is worse when an agent wants to trade against a public information signal. So, when based on public information, the currency is expected to appreciate, there is more adverse selection associated with a sell order than with a buy order. (JEL E43, F31, G15) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.127 10.1257/mac.1.2.127 http://www.aeaweb.org/aej/mac/data/2008-0028_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article The International Diversification Puzzle When Goods Prices Are Sticky: It's Really about Exchange-Rate Hedging, Not Equity Portfolios CharlesEngelU WI AkitoMatsumotoIMF 155 88 This paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some nominal goods prices are sticky. Trade in these assets achieves the same allocations as trade in a complete set of nominal state-contingent claims in our linearized model. When there is a high degree of price stickiness, we show that not much equity diversification is required to replicate the complete-markets equilibrium when agents are able to hedge foreign exchange risk sufficiently. Moreover, temporarily sticky nominal goods prices can have large effects on equity portfolios even when dividend processes are very persistent. (JEL E13, F41, G11, G15) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.155 10.1257/mac.1.2.155 http://www.aeaweb.org/aej/mac/app/2007-0011_app.pdf American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article A Century of Work and Leisure Valerie A.RameyU CA, San Diego NevilleFrancisU NC 189 224 We develop comprehensive measures of time spent in market work, home production, schooling, and leisure in the United States for the last 106 years. We find that hours of work for prime age individuals are essentially unchanged, with the rise in women's hours fully compensating for the decline in men's hours. Hours worked by those 14 to 24 years old have declined noticeably, but most of this decline was offset by a rise in hours spent in school. Overall, per capita leisure and average annual lifetime leisure increased by only four or five hours per week during the last 100 years. (JEL D13, J16, J22) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.189 10.1257/mac.1.2.189 http://www.aeaweb.org/aej/mac/data/2007-0035_data.zip American Economic Association Nashville, TN 1945-7707 1945-7715 American Economic Journal: Macroeconomics http://www.aeaweb.org/aej-macro/ 1 2 July 2009 http://www.aeaweb.org/issue.php?journal=MAC&volume=1&issue=2 Journal Article How Is Foreign Aid Spent? Evidence from a Natural Experiment EricWerkerHarvard U Faisal Z.AhmedU Chicago CharlesCohenSankaty Advisors, Boston, MA 225 44 We use oil price fluctuations to test the impact of transfers from wealthy OPEC nations to their poorer Muslim allies. The instrument identifies plausibly exogenous variation in foreign aid. We investigate how aid is spent by tracking its short-run effect on aggregate demand, national accounts, and balance of payments. Aid affects most components of GDP though it has no statistically identifiable impact on prices or economic growth. Much aid is consumed, primarily in the form of imported noncapital goods. Aid substitutes for domestic savings, has no effect on the financial account, and leads to unaccounted capital flight. (JEL F35, O19) http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.225 10.1257/mac.1.2.225 http://www.aeaweb.org/aej/mac/data/2007-0057_data.zip